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Redwood Trust's Earnings Increase in Second Quarter 2003; GAAP Earnings of $1.21 Per Share and Core Earnings of $1.13 Per Share

Thursday, July 24, 2003

MILL VALLEY, Calif.--(BUSINESS WIRE)--July 24, 2003--Redwood Trust, Inc. (NYSE:RWT), an investor in real estate loans, today reported GAAP earnings of $1.21 per share for the second quarter of 2003, an increase of 38% from first quarter 2003 and second quarter 2002 GAAP earnings of $0.88 per share. GAAP earnings for the first six months of 2003 totaled $2.09 per share versus $1.68 per share earned in the first half of 2002.

Core earnings, which exclude realized and unrealized gains and losses on the market value of assets, were $1.13 per share for the second quarter of 2003, a 28% increase from first quarter 2003 core earnings of $0.88 per share and a 41% increase from second quarter 2002 core earnings of $0.80 per share. Core earnings for the first half of 2003 totaled $2.01 per share as compared to $1.57 per share earned during the first six months of 2002.

Doug Hansen, Redwood's President, commented, "We are very pleased with the strong earnings and cash flow generated by our real estate loan portfolios. Our record results for the quarter reflect the sound underlying characteristics of our real estate loans as well as better utilization of our capital base. In addition, we benefited during the second quarter from several temporary factors, including favorable prepayment patterns and a decline in short-term interest rates."

Second Quarter Review

During the second quarter of 2003, Redwood acquired $2.2 billion high-quality jumbo adjustable-rate residential real estate loans, $11 million residential loan credit-enhancement securities, $3 million commercial real estate loans, and $238 million other residential and commercial real estate loan securities.

Redwood's combined residential portfolios, including loans Redwood owns and the principal value of loans Redwood credit-enhances, decreased from $68 billion to $61 billion during the second quarter. Residential real estate loans owned by Redwood increased from $7 billion to $9 billion due to strong acquisition volume and relatively slow prepayment rates on these adjustable-rate loans. Loans credit-enhanced by Redwood decreased from $61 billion to $52 billion due to reduced acquisitions of credit-enhancement securities and rapid prepayments of the fixed-rate and hybrid loans in the credit-enhanced portfolio.

Serious delinquencies in Redwood's combined residential portfolios increased during the second quarter from $163 million to $164 million. Delinquencies as a percentage of current loan balances increased during the quarter from 0.24% to 0.27% primarily as a result of rapid loan prepayment rates. The company's delinquency ratios are well below national averages for these types of loans. Actual credit losses for the quarter remained under 0.01% (one basis point) of current loan balances on an annualized basis. In general, the company expects that its current delinquency and loss rates are unsustainably low and are likely to increase over time even if housing markets remain strong.

Redwood's GAAP-basis operating profitability margin - net interest income as a percentage of GAAP equity - improved from 19.8% in the first quarter of 2003 to 23.4% in the second quarter of the year. Redwood's core-basis operating profitability margin - net interest income as a percentage of core equity - improved during the quarter from 23.3% to 27.6%. Favorable prepayment and interest rate trends, improved capital utilization, and strong credit results drove most of this increase in profitability.

"Our second quarter results benefited from decreasing short-term interest rates," said Hansen. "We have always maintained a reasonable match between the characteristics of our assets and liabilities. Our goal is to mitigate much of the potential earnings volatility that could result from interest rate changes. In the past, we were willing to carry a degree of one- to six-month mismatch between the characteristics of a portion of our assets and liabilities. Consequently, we benefited from declining short-term interest rates over the last two years. Recently, however, we have been lengthening the maturity of our liabilities and increasing our hedging activities with the goal of reducing our remaining short-term asset/liability mismatches. As a result, we expect our liability and hedging costs to increase. Furthermore, it is unlikely that we would benefit from any additional decreases in short-term interest rates should they occur."

"We continued to generate relatively high levels of REIT taxable income per share in the second quarter," said Hansen. "We currently plan to retain, on a permanent basis, up to 10% of our 2003 REIT taxable income to build core book value per share and thus further support the sustainability of our regular dividend rate. We also currently plan to defer distribution of a portion of our 2003 REIT taxable income in order to pre-fund a portion of the regular dividends we plan to distribute in 2004. We will incur income and excise taxes if we retain and defer the distribution of income."

"Even if we retain and defer income as described, we may need to distribute substantial special dividends in excess of our regular dividend rate of $0.65 per share per quarter," Hansen added. "Pursuant to the REIT rules, we may be required to make special distributions if we continue to generate high levels of REIT taxable income during the remainder of 2003. The declaration of any special dividends will depend on a variety of factors and future events. If we declare one or more special dividends representing the distribution of 2003 REIT taxable income, the declarations could occur during 2003 or as late as September 2004."

Hansen observed, "We face a number of potential challenges in the years ahead, including the likelihood of increased competition and a reduced supply of real estate loan investment opportunities when the mortgage refinance boom ends. We believe our results over the next few years will most likely be driven by the solid characteristics of our current asset base, whereas our longer-term results will depend on our ability to continue to create attractive real estate loan investment opportunities as our current book of loans pays down."

"We believe strongly that our regular dividend rate is sustainable even if we face increased challenges in the future," concluded Hansen. "With our strong competitive cost position, multiple investment opportunities in our residential and commercial loan markets, and the discipline and execution ability of our investment and finance staff, we remain optimistic about the years ahead."

For more information about Redwood Trust, Inc., please visit www.redwoodtrust.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this news release may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, among other things, changes in interest rates on our real estate loan assets and borrowings, changes in prepayment rates on our real estate loan assets, general economic conditions, particularly as they affect the price of real estate loan and the credit status of borrowers, and the level of liquidity in the capital markets, as it affects our ability to finance our real estate loan portfolio, and other risk factors outlined in the Company's 2002 Annual Report on Form 10-K (available on the Company's Web site or by request to the Contacts listed above). Other factors not presently identified may also cause actual results to differ. No one should assume that results or trends projected in or contemplated by the forward-looking statements included above will prove to be accurate in the future. We will revise our outlook from time to time and frequently will not disclose such revisions publicly.

REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)

                 Second      First     Fourth      Third     Second
INCOME           Quarter    Quarter    Quarter    Quarter    Quarter
 STATEMENT        2003       2003       2002       2002       2002
----------------------------------------------------------------------

Interest Income   $71,426$61,125$54,155$42,093$36,252
Interest
 Expense          (41,802)   (36,933)   (33,323)   (24,291)   (18,489)
----------------------------------------------------------------------
Net Interest
 Income            29,624     24,192     20,832     17,802     17,763

Operating
 Expenses          (7,303)    (6,472)    (6,009)    (4,290)    (4,536)
Mark-to-Market
 Adjustments        1,451        (30)     1,383      1,475      1,256
Taxes              (1,560)    (2,077)      (959)         0          0
Preferred
 Dividends              0       (681)      (681)      (681)      (681)
               -------------------------------------------------------
GAAP Earnings     $22,212$14,932$14,566$14,306$13,802

Less:  Mark-to-
 Market
 Adjustments       (1,451)        30     (1,383)    (1,475)    (1,256)
----------------------------------------------------------------------
Core Earnings(1)  $20,761$14,962$13,183$12,831$12,546

Average Diluted
 Shares        18,433,165 16,983,513 16,529,075 16,240,194 15,747,048
GAAP Earnings
 per Share
 (Diluted)          $1.21$0.88$0.88$0.88$0.88
Core Earnings
 per Share (1)      $1.13$0.88$0.80$0.79$0.80

Dividends per
 Common Share
 (Regular)         $0.650     $0.650     $0.630     $0.630     $0.630
Dividends per
 Common Share
 (Special)         $0.000     $0.000     $0.125     $0.125     $0.125
----------------------------------------------------------------------
Total Dividends
 per Common
 Share             $0.650     $0.650     $0.755     $0.755     $0.755

Yield on
 Earning Assets      3.35%      3.31%      3.59%      4.07%      4.71%
Cost of Funds        2.05%      2.10%      2.35%      2.57%      2.69%
----------------------------------------------------------------------
Interest Rate
 Spread              1.30%      1.21%      1.24%      1.50%      2.02%

Net Interest
 Margin              1.36%      1.28%      1.35%      1.68%      2.25%
Net Interest
 Income /
 Average GAAP
 Equity              23.4%      19.8%      18.5%      16.5%      18.4%
Net Interest
 Income /
 Average Core
 Equity (2)          27.6%      23.3%      20.9%      18.5%      19.1%

GAAP Return on
 Equity:  GAAP
 Earnings/
 Average GAAP
 Equity              17.6%      12.9%      13.7%      14.1%      15.4%
Core Return on
 Equity:  Core
 Earnings /
 Average Core
 Equity              19.4%      15.4%      14.2%      14.3%      14.5%

(1) Core earnings is not a measure of earnings in accordance with
generally accepted accounting principles (GAAP). It is calculated as
GAAP earnings from ongoing operations less mark-to-market adjustments
(which include realized and unrealized gains and losses on certain
assets, hedges, and variable stock options). Management believes that
core earnings provides relevant and useful information regarding its
results from operations in addition to GAAP measures of performance.
This is, in part, because market valuation adjustments on only a
portion of the company's assets and stock options and none of its
liabilities are recognized through the income statement under GAAP and
thus GAAP valuation adjustments may not be fully indicative of changes
in market values on the balance sheet as a whole or a reliable guide
to current operating performance. Furthermore, gains or losses
realized upon sales of assets vary based on portfolio management
decisions; a sale of an asset for a gain or a loss may or may not
affect on-going earnings from operations. Because all companies and
analysts do not calculate non-GAAP measures such as core earnings in
the same fashion, core earnings as calculated by the company may not
be comparable to similarly titled measures reported by other
companies.

(2) Core equity is calculated as GAAP equity less unrealized gains and
losses on certain assets and hedges. Management believes measurements
based on core equity provide relevant useful information regarding its
results of operations in addition to GAAP measures of performance.
This is, in part, because market valuation adjustments reflected in
GAAP equity represent unrealized gains and losses on a portion of the
balance sheet only and may not be reflective of the equity available
to invest in operations. Because all companies and analysts do not
calculate non-GAAP measures in the same fashion, core equity and
ratios using core equity as calculated by the company may not be
comparable to similarly titled measures reported by other companies.

REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)
                                                   Six        Six
                                                  Months     Months
INCOME STATEMENT                                   2003       2002
----------------------------------------------------------------------

Interest Income                                   $132,551$66,968
Interest Expense                                   (78,735)   (34,091)
----------------------------------------------------------------------
Net Interest Income                                 53,816     32,877

Operating Expenses                                 (13,775)    (8,082)
Mark-to-Market Adjustments                           1,421      1,588
Taxes                                               (3,637)         0
Preferred Dividends                                   (681)    (1,362)
----------------------------------------------------------------------
GAAP Earnings                                      $37,144$25,021

Less:  Mark-to-Market Adjustments                   (1,421)    (1,588)
----------------------------------------------------------------------
Core Earnings (1)                                  $35,723$23,433

Average Diluted Shares                          17,730,304 14,920,053
GAAP Earnings per Share (Diluted)                    $2.09$1.68
Core Earnings per Share (1)                          $2.01$1.57

Dividends per Common Share (Regular)                $1.300     $1.250
Dividends per Common Share (Special)                $0.000     $0.125
----------------------------------------------------------------------
Total Dividends per Common Share                    $1.300     $1.375

Yield on Earning Assets                               3.33%      4.80%
Cost of Funds                                         2.07%      2.75%
----------------------------------------------------------------------
Interest Rate Spread                                  1.26%      2.05%

Net Interest Margin                                   1.32%      2.30%
Net Interest Income / Average GAAP Equity             21.6%      18.1%
Net Interest Income / Average Core Equity (2)         25.5%      18.7%

GAAP Return on Equity:  GAAP Earnings/ Average
 GAAP Equity                                          15.3%      14.8%
Core Return on Equity:  Core Earnings / Average
 Core Equity                                          17.5%      14.4%

(1) Core earnings is not a measure of earnings in accordance with
generally accepted accounting principles (GAAP). It is calculated as
GAAP earnings from ongoing operations less mark-to-market adjustments
(which include realized and unrealized gains and losses on certain
assets, hedges, and variable stock options). Management believes that
core earnings provides relevant and useful information regarding its
results from operations in addition to GAAP measures of performance.
This is, in part, because market valuation adjustments on only a
portion of the company's assets and stock options and none of its
liabilities are recognized through the income statement under GAAP and
thus GAAP valuation adjustments may not be fully indicative of changes
in market values on the balance sheet as a whole or a reliable guide
to current operating performance. Furthermore, gains or losses
realized upon sales of assets vary based on portfolio management
decisions; a sale of an asset for a gain or a loss may or may not
affect on-going earnings from operations. Because all companies and
analysts do not calculate non-GAAP measures such as core earnings in
the same fashion, core earnings as calculated by the company may not
be comparable to similarly titled measures reported by other
companies.

(2) Core equity is calculated as GAAP equity less unrealized gains and
losses on certain assets and hedges. Management believes measurements
based on core equity provide relevant useful information regarding its
results of operations in addition to GAAP measures of performance.
This is, in part, because market valuation adjustments reflected in
GAAP equity represent unrealized gains and losses on a portion of the
balance sheet only and may not be reflective of the equity available
to invest in operations. Because all companies and analysts do not
calculate non-GAAP measures in the same fashion, core equity and
ratios using core equity as calculated by the company may not be
comparable to similarly titled measures reported by other companies.


REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)

                 30-Jun     31-Mar     31-Dec     30-Sep     30-Jun
BALANCE SHEET     2003       2003       2002       2002       2002
----------------------------------------------------------------------

Residential
 Real Estate
 Loans         $9,247,420$7,321,039$6,215,179$4,761,893$2,803,556
Residential
 Loan Credit-
 Enhancement
 Securities       393,411    373,162    352,479    324,130    284,759
Commercial
 Real Estate
 Loans             34,522     31,214     29,270     50,664     49,798
Securities
 Portfolio        595,577    366,307    335,697    491,756    512,490
Cash and Cash
 Equivalents       36,539     42,882     39,169     20,606     13,155
Working
 Capital and
 Other Assets      48,583     37,459     35,978     25,253     26,024
----------------------------------------------------------------------
Total Assets  $10,356,052$8,172,063$7,007,772$5,674,302$3,689,782

Short-Term
 Debt            $217,684$475,717$99,714$834,081$1,005,003
Long-Term Debt  9,542,631  7,170,691  6,397,020  4,365,281  2,241,600
Working
 Capital and
 Other
 Liabilities       48,561     40,253     38,005     29,212     25,249
Preferred
 Equity                 0     26,517     26,517     26,517     26,517
Common Equity     547,176    458,885    446,516    419,211    391,413
----------------------------------------------------------------------
Total
 Liabilities
 and Equity   $10,356,052$8,172,063$7,007,772$5,674,302$3,689,782

Total GAAP
 Equity          $547,176$485,402$473,033$445,728$417,930
Less: Mark-to-
 Market
 Adjustments     (108,409)   (68,077)   (69,146)   (54,148)   (35,826)
----------------------------------------------------------------------
Core Equity      $438,767$417,325$403,887$391,580$382,104

Common Shares
 Outstanding
 at Period End 17,820,856 16,604,910 16,277,285 15,886,421 15,624,012
GAAP Equity
 (GAAP Book
 Value) per
 Common Share      $30.70$27.64$27.43$26.39$25.05
Core Equity
 (Core Book
 Value) per
 Common Share      $24.62$23.54$23.18$22.98$22.76

Net Premium /
 (Discount)
 Balance         $(32,465)  $(33,319)   $(9,662)     $(446)   $(9,147)

Average Total
 Assets        $8,687,371$7,553,727$6,158,898$4,234,477$3,158,751
Average
 Earning
 Assets        $8,523,925$7,393,566$6,042,042$4,131,870$3,080,165
Average
 Interest
 Bearing
 Liabilities   $8,160,393$7,036,183$5,680,238$3,781,717$2,752,215
Average Total
 GAAP Equity
 (Common and
 Preferred)      $505,373$489,086$450,464$432,310$385,887REDWOOD TRUST, INC.
(All dollars in thousands)

LEVERAGE        30-Jun      31-Mar     31-Dec     30-Sep     30-Jun
 RATIOS (1)      2003        2003       2002       2002       2002
----------------------------------------------------------------------

Total Reported
 Assets       $10,356,052$8,172,063$7,007,772$5,674,302$3,689,782
Less: Non-
 Recourse
 Assets        (9,591,192)(7,210,944)(6,435,025)(4,394,493)(2,266,849)
----------------------------------------------------------------------
Recourse
 Assets          $764,860$961,119$572,747$1,279,809$1,422,933

Total Reported
 Debt          $9,760,315$7,646,408$6,496,734$5,199,362$3,246,603
Less:  Non-
 Recourse Debt (9,542,631)(7,170,691)(6,397,020)(4,365,281)(2,241,600)
----------------------------------------------------------------------
Recourse Debt    $217,684$475,717$99,714$834,081$1,005,003

Reported Debt
 to GAAP
 Equity              17.8       15.8       13.7       11.7        7.8
GAAP Equity /
 Total
 Reported
 Assets                 5%         6%         7%         8%        11%

Recourse Debt
 to GAAP
 Equity               0.4        1.0        0.2        1.9        2.4
GAAP Equity /
 Recourse
 Assets                72%        51%        83%        35%        29%

(1) The majority of our debt is non-recourse debt. Holders of
non-recourse debt can look only to the pledged assets - and not to
Redwood - for repayment. Therefore, management believes that another
useful measure of the leverage we employ is to compute leverage ratios
comparing our equity base to our recourse debt (reported debt less
non-recourse debt) and to our recourse assets (our assets for which we
are "at-risk," i.e., excluding those assets pledged to non-recourse
debt).


REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)

                 Second      First     Fourth      Third     Second
                 Quarter    Quarter    Quarter    Quarter    Quarter
                  2003       2003       2002       2002       2002
               -------------------------------------------------------
Residential
 Real Estate
 Loans
--------------
Start of
 Period
 Balances      $7,321,039$6,215,179$4,761,893$2,803,556$1,794,260
Acquisitions    2,168,181  1,338,920  1,616,400  2,075,296  1,146,621
Sales Proceeds          0    (73,137)         0     (2,960)   (46,683)
Principal
 Paydowns        (234,582)  (152,768)  (155,915)  (109,896)   (89,582)
Net
 Amortization
 Expense           (5,055)    (6,156)    (5,754)    (3,502)    (1,060)
Net Charge
 Offs
 (Recoveries)           0         31          0        236          0
Credit
 Provisions        (2,163)    (1,756)    (1,660)      (894)      (472)
Mark-to-Market
  - Income
 Statement              0        726        215         57        472
-------------- -------------------------------------------------------
End of Period
 Balances      $9,247,420$7,321,039$6,215,179$4,761,893$2,803,556

Average
 Amortized
 Cost During
 Period        $7,670,484$6,625,539$5,318,910$3,262,462$2,201,384
Interest
 Income           $47,299$42,314$37,264$24,447$19,601
Yield                2.47%      2.55%      2.80%      3.00%      3.56%

Principal
 Value of
 Loans         $9,206,986$7,297,515$6,190,674$4,736,646$2,795,628
Credit Reserve    (12,159)    (9,996)    (8,271)    (6,611)    (5,953)
Net Premium
 (Discount) to
 be Amortized      52,593     33,520     32,776     31,858     13,881
-------------- -------------------------------------------------------
Residential
 Real Estate
 Loans         $9,247,420$7,321,039$6,215,179$4,761,893$2,803,556

Credit
 Reserve,
 Start of
 Period            $9,996$8,271$6,611$5,953$5,481
Net Charge-
 Offs (NCO)             0        (31)         0       (236)         0
Credit
 Provisions         2,163      1,756      1,660        894        472
-------------- -------------------------------------------------------
Credit
 Reserve, End
 of Period        $12,159$9,996$8,271$6,611$5,953

Delinquencies
 (90 days + FC
 + BK + REO)       $3,895$1,159$4,127$1,387$3,257

Delinquencies
 as % of
 Residential
 Loans               0.04%      0.02%      0.07%      0.03%      0.12%
NCO as % of
 Residential
 Loans
 (Annualized)        0.00%      0.01%      0.00%      0.01%      0.00%
Reserve as %
 of
 Residential
 Loans               0.13%      0.14%      0.13%      0.14%      0.21%
Reserve as %
 of
 Delinquencies        312%       862%       200%       477%       183%


REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)

                                    Second       First       Fourth
                                    Quarter     Quarter     Quarter
                                     2003        2003        2002
                                  ------------------------------------
Residential Loan Credit-
 Enhancement Securities
----------------------------------
Start of Period Balances             $373,162$352,479$324,130
Acquisitions                           11,265      37,077      13,442
Sales Proceeds                         (1,248)          0           0
Principal Paydowns                    (38,773)    (23,212)    (13,573)
Net Amortization Income                10,024       5,545       3,275
Mark-to-Market  - Balance Sheet        35,551         998      25,205
Mark-to-Market  - Income Statement      3,430         275           0
----------------------------------------------------------------------
End of Period Balances               $393,411$373,162$352,479

Average Amortized Cost During
 Period                              $279,010$278,339$271,016
Interest Income                       $17,977$13,693$11,283
Yield                                   25.77%      19.68%      16.65%

Principal Value of Redwood's
 Securities                          $598,134$614,111$559,186
Internally Designated Credit
 Reserve on Loans Credit-Enhanced    (204,675)   (234,060)   (224,891)
Net Discount to be Amortized         (113,358)    (84,648)    (58,578)
----------------------------------------------------------------------
Net Investment in Credit-
 Enhancement Securities              $280,101$295,403$275,717
Market Valuation Adjustments          113,310      77,759      76,762
----------------------------------------------------------------------
Residential Loan Credit-
 Enhancement Securities              $393,411$373,162$352,479

Securities Senior to Redwood's
 Interests                        $51,168,069$60,072,291$58,036,745
Securities Junior to Redwood's
 Interests                             58,296      61,814      63,179
----------------------------------------------------------------------
Underlying Mortgage Loan Balances $51,824,499$60,748,216$58,659,110

Internally Designated Credit
 Reserve on Loans Credit-Enhanced    $204,675$234,060$224,891
External Credit Enhancement on
 Loans Credit-Enhanced                 58,296      61,814      63,179
----------------------------------------------------------------------
Total Credit Protection (1)          $262,971$295,874$288,070

Delinquencies (90 days + FC + BK +
 REO)                                $159,999$161,498$146,226

Redwood's Net Charge-Offs               $(232)      $(684)      $(214)
Losses to Securities Junior to
 Redwood's Interests                     (152)       (456)       (163)
----------------------------------------------------------------------
Total Underlying Loan Credit
 Losses                                 $(384)    $(1,140)      $(377)

Delinquencies as % of Underlying
 Loans                                   0.31%       0.27%       0.25%
Total Pool Credit
 Losses/Underlying Loans
 (Annualized)                            0.01%       0.01%       0.01%
Total Credit Protection as % of
 Underlying Loans                        0.51%       0.49%       0.49%
Total Credit Protection as % of
 Delinquencies                            164%        183%        197%


REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)
                                                 Third      Second
                                                Quarter     Quarter
                                                 2002        2002
                                              ------------------------
Residential Loan Credit-
 Enhancement Securities
----------------------------------
Start of Period Balances                         $284,759$249,832
Acquisitions                                       28,983      25,849
Sales Proceeds                                          0        (898)
Principal Paydowns                                 (9,437)    (15,801)
Net Amortization Income                             2,722       1,767
Mark-to-Market  - Balance Sheet                    17,351      21,795
Mark-to-Market  - Income Statement                   (248)      2,215
----------------------------------            ------------------------
End of Period Balances                           $324,130$284,759

Average Amortized Cost During
 Period                                          $257,844$238,282
Interest Income                                   $10,443$9,006
Yield                                               16.20%      15.12%

Principal Value of Redwood's
 Securities                                      $542,669$492,642
Internally Designated Credit
 Reserve on Loans Credit-Enhanced                (220,735)   (206,343)
Net Discount to be Amortized                      (49,360)    (35,745)
----------------------------------            ------------------------
Net Investment in Credit-
 Enhancement Securities                          $272,574$250,554
Market Valuation Adjustments                       51,556      34,205
----------------------------------            ------------------------
Residential Loan Credit-
 Enhancement Securities                          $324,130$284,759

Securities Senior to Redwood's
 Interests                                    $67,876,543$65,503,415
Securities Junior to Redwood's
 Interests                                         64,147      65,102
----------------------------------            ------------------------
Underlying Mortgage Loan Balances             $68,483,359$66,061,159

Internally Designated Credit
 Reserve on Loans Credit-Enhanced                $220,735$206,343
External Credit Enhancement on
 Loans Credit-Enhanced                             64,147      65,102
----------------------------------            ------------------------
Total Credit Protection (1)                      $284,882$271,445

Delinquencies (90 days + FC + BK +
 REO)                                            $151,507$149,960

Redwood's Net Charge-Offs                            $(47)        $74
Losses to Securities Junior to
 Redwood's Interests                                 (103)       (189)
----------------------------------            ------------------------
Total Underlying Loan Credit
 Losses                                             $(150)      $(115)

Delinquencies as % of Underlying
 Loans                                               0.22%       0.23%
Total Pool Credit
 Losses/Underlying Loans
 (Annualized)                                        0.01%       0.01%
Total Credit Protection as % of
 Underlying Loans                                    0.42%       0.41%
Total Credit Protection as % of
 Delinquencies                                        188%        181%

(1) Total credit protection represents the aggregate of the internally
designated credit reserve and the amount of any junior securities with
respect to each credit-enhanced security. The credit protection amount
for any credit-enhanced security is only available to absorb losses on
the pool of loans related to that security. To the extent such losses
exceed the credit protection amount for that security, a charge-off of
the net investment in that security would result.


REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)

                                    Second       First      Fourth
                                    Quarter     Quarter     Quarter
COMBINED RESIDENTIAL LOAN            2003        2003        2002
 PORTFOLIOS
----------------------------------------------------------------------

Residential Real Estate Loans
 Owned                             $9,247,420$7,321,039$6,215,179
Residential Loans Credit-Enhanced  51,824,499  60,748,216  58,659,110
----------------------------------------------------------------------
Total Residential Loans           $61,071,919$68,069,255$64,874,289


Credit Reserve on Residential Real
 Estate Loans Owned                   $12,159$9,996$8,271
Internally Designated Credit
 Reserve on Loans Credit-Enhanced     204,675     234,060     224,891
----------------------------------------------------------------------
Redwood's Total Residential Credit
 Protection                          $216,834$244,056$233,162
External Credit Enhancement on
 Loans Credit-Enhanced                 58,296      61,814      63,179
----------------------------------------------------------------------
Total Credit Protection (1)          $275,130$305,870$296,341
Total Credit Protection as % of
 Total Residential Loans                 0.45%       0.45%       0.46%


Residential Real Estate Loans
 Owned Delinquencies                   $3,895$1,159$4,127
Residential Loans Credit-Enhanced
 Delinquencies                        159,999     161,498     146,226
----------------------------------------------------------------------
Total Residential Loan
 Delinquencies                       $163,894$162,657$150,353

Delinquencies as % of Total
 Residential Loans                       0.27%       0.24%       0.23%
Total Credit Protection as % of
 Delinquencies                            168%        188%        197%


Net Charge-Offs on Residential
 Real Estate Loans Owned                   $0        $(31)         $0
Net Charge-Offs on Residential
 Loan Credit-Enhanced                    (232)       (684)       (214)
----------------------------------------------------------------------
Redwood's Shares of Net Credit
 (Losses) Recoveries                    $(232)      $(715)      $(214)
Credit Losses to External Credit
 Enhancement                             (152)       (456)       (163)
----------------------------------------------------------------------
Total Credit Losses                     $(384)    $(1,171)      $(377)
Total Credit Losses as % of Total
 Resid. Loans (Annualized)               0.01%       0.01%       0.01%


REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)
                                                 Third      Second
                                                Quarter     Quarter
COMBINED RESIDENTIAL LOAN                        2002        2002
 PORTFOLIOS
----------------------------------            ------------------------

Residential Real Estate Loans
 Owned                                         $4,761,893$2,803,556
Residential Loans Credit-Enhanced              68,483,359  66,061,159
----------------------------------            ------------------------
Total Residential Loans                       $73,245,252$68,864,715


Credit Reserve on Residential Real
 Estate Loans Owned                                $6,611$5,953
Internally Designated Credit
 Reserve on Loans Credit-Enhanced                 220,735     206,343
----------------------------------            ------------------------
Redwood's Total Residential Credit
 Protection                                      $227,346$212,296
External Credit Enhancement on
 Loans Credit-Enhanced                             64,147      65,102
----------------------------------            ------------------------
Total Credit Protection (1)                      $291,493$277,398
Total Credit Protection as % of
 Total Residential Loans                             0.40%       0.40%


Residential Real Estate Loans
 Owned Delinquencies                               $1,387$3,257
Residential Loans Credit-Enhanced
 Delinquencies                                    151,507     149,960
----------------------------------            ------------------------
Total Residential Loan
 Delinquencies                                   $152,894$153,217

Delinquencies as % of Total
 Residential Loans                                   0.21%       0.22%
Total Credit Protection as % of
 Delinquencies                                        191%        181%

Net Charge-Offs on Residential
 Real Estate Loans Owned                            $(236)         $0
Net Charge-Offs on Residential
 Loan Credit-Enhanced                                 (47)         74
----------------------------------            ------------------------
Redwood's Shares of Net Credit
 (Losses) Recoveries                                $(283)        $74
Credit Losses to External Credit
 Enhancement                                         (103)       (189)
----------------------------------            ------------------------
Total Credit Losses                                 $(386)      $(115)
Total Credit Losses as % of Total
 Resid. Loans (Annualized)                           0.01%       0.01%

(1) The credit reserve on residential real estate loans owned is only
available to absorb losses on the residential real estate loan
portfolio. The internally designated credit reserve on loans
credit-enhanced and the external credit enhancement on loans
credit-enhanced are only available to absorb losses on the residential
loan credit-enhancement portfolio.


REDWOOD TRUST, INC.
(All dollars in thousands, except per share data)

                          Second    First   Fourth    Third   Second
Commercial Real Estate    Quarter  Quarter  Quarter  Quarter  Quarter
 Loans                     2003     2003     2002     2002     2002
------------------------ ---------------------------------------------
Start of Period Balances  $31,214$29,270$50,664$49,798$49,380
Acquisitions                3,408    2,011        0      919      470
Sales Proceeds                  0        0        0        0        0
Principal Paydowns            (34)     (68) (21,068)     (54)     (53)
Net Amortization Income       (67)       0       24        0        0
Mark-to-Market  -
 Balance Sheet                  0        0        0        0        0
Mark-to-Market  - Income
 Statement                      1        1     (350)       1        1
------------------------ ---------------------------------------------
End of Period Balances    $34,522$31,214$29,270$50,664$49,798

Average Amortized Cost
 During Period            $33,138$30,888$47,935$50,102$49,369
Interest Income              $960$816$1,213$1,280$1,233
Yield                       11.59%   10.57%   10.12%   10.22%    9.99%

Principal Value of Loans  $42,492$32,223$30,250$51,318$50,436
Net Discount               (7,970)  (1,009)    (980)    (654)    (638)
------------------------ ---------------------------------------------
Commercial Mortgage
 Loans                    $34,522$31,214$29,270$50,664$49,798

Commercial Real Estate
 Loan Delinquencies          $650$650$650$0$0
Commercial Real Estate
 Loan Net Charge-Offs          $0$0$0$0$0
Commercial Real Estate
 Loan Credit Provisions        $0$0$0$0$0
Commercial Real Estate
 Loan Credit Reserves          $0$0$0$0$0

                           Second    First   Fourth    Third   Second
                           Quarter  Quarter  Quarter  Quarter  Quarter
Securities Portfolio         2003     2003     2002     2002     2002
------------------------ ---------------------------------------------
Start of Period Balances $366,307$335,697$491,756$512,489$609,432
Acquisitions              237,516   42,955  196,279    6,811   23,026
Sales Proceeds             (4,051)       0 (315,308)       0  (56,802)
Principal Paydowns        (12,126) (11,329) (31,009) (31,830) (65,617)
Net Amortization Income
 (Expense)                   (111)       3      (24)  (1,051)  (1,249)
Mark-to-Market  -
 Balance Sheet              8,070     (944)  (7,128)     970    3,017
Mark-to-Market  - Income
 Statement                    (28)     (75)   1,131    4,367      683
------------------------ ---------------------------------------------
End of Period Balances   $595,577$366,307$335,697$491,756$512,490

Average Amortized Cost
 During Period           $453,546$360,084$320,154$493,997$529,843
Interest Income            $5,057$4,192$3,949$5,719$6,222
Yield                        4.46%    4.66%    4.93%    4.63%    4.70%

Principal Value of
 Securities              $587,038$370,187$335,402$477,950$502,684
Net Premium (Discount)
 to be Amortized            5,946    1,597    4,828   11,214    8,183
Market Valuation
 Adjustments                2,593   (5,477)  (4,533)   2,592    1,622
------------------------ ---------------------------------------------
Securities Portfolio     $595,577$366,307$335,697$491,756$512,489
    CONTACT: Redwood Trust, Inc.
             Doug Hansen/George Bull, 415/389-7373

    SOURCE: Redwood Trust, Inc.

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